Russia: Struggle Under Way For Control Of Strategic Russian Port by Liz Fuller, EurasiaNet
A EurasiaNet Partner Post from: RFE/RL
For the past several years, the volume of goods and crude oil shipped through the commercial port of Makhachkala on Daghestan’s Caspian coast has been declining, from 4.8 million tons in 2010 to 3.8 million in 2015 and 1.6 million in the first six months of 2016. Yet notwithstanding that decline, a cutthroat competition is under way for control of the state-owned port, which is scheduled for privatization by auction before the end of this year.
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Initially, the two protagonists in that struggle were Daghestani oligarchs Ziavuddin Magomedov and Suleyman Kerimov. In recent weeks, however, Daghestan’s leadership has reportedly begun talks with a third potential buyer.
Rival interest groups within the Russian government may also have designs on the port, which is the only Russian deep-water port on the Caspian that is not closed by ice for part of the winter.
First Deputy Minister for the North Caucasus Odes Baysultanov is lobbying for its transformation into a major transport and logistical hub, while the independent Daghestani weekly Chernovik reports that the Russian Defense Ministry may seek to appropriate at least part of the infrastructure as a base for the Caspian fleet.
Magomedov, 47, is an Avar who heads the Summa investment group, which focuses on port logistics, engineering, highway construction, and oil and gas transportation, both in Russia and abroad. Last year he was considering investing in an oil terminal in Rotterdam; in June 2016 Summa and Hyperloop One signed an agreement with the city of Moscow to explore the possibility of a high-speed passenger transport system for the Russian capital. Magomedov is close to Daghestan’s influential mufti Akhmad-hadzhi Abdulayev.
Suleyman Kerimov, 50, is a Lezgin from southern Daghestan whose business career began in the 1990s with the purchase of a majority stake in the diversified investment company Nafta Moskva. A semi-recluse who has never given an interview, his net worth is currently estimated at $7.4 billion.
Daghestani journalist Andrei Melamedov has pointed out that the two men have different motives for seeking control of the port. For Magomedov, doing so is the logical next step in expanding his control of major infrastructure. (Summa already has stakes in the ports of Novorossiisk and Taman.) Kerimov, by contrast, has consistently engaged in buying up failing companies with potential, revamping them, and selling them at a profit.
The competition between the two men for control of the Makhachkala port’s operations dates back years. From 1998 to 2010, the port director was Magomedov’s associate and fellow Avar, Abusupyan Kharkharov, who stubbornly opposed privatization on the grounds that the Russian government had already invested large sums in modernizing the port.
Kharkharov was subsequently appointed a Daghestani deputy prime minister, but was dismissed from that post in 2010 and is currently facing trial on corruption charges connected to his disposal of some of the port’s assets.
Kharkharov was succeeded as port director by Akhmed Gadzhiyev, whose brother Magomed has been characterized as Kerimov’s right-hand man. When Gadzhiyev’s contract expired in April, Rosmorrechflot, the government agency responsible for port operations, declined to renew it and instead tried to appoint a Magomedov crony, Andrei Gormakh. But the Gudermes district court in the neighboring Chechen Republic ruled that Gormakh’s appointment was illegal as a hitherto unknown Chechen candidate’s application for the post of port director had been rejected out of hand.
Close to Kadyrov
Chechen Republic head Ramzan Kadyrov is known to be close to Kerimov.
The Russian Prosecutor-General’s Office upheld the Gudermes court ruling, even though Rosmorrechflot denied that the Chechen plaintiff, Magomed Kantayev, had ever applied for the post. Gadzhiyev’s deputy Muradkhan Khidirov was duly named acting port director instead.
According to Khidirov, a decision on the future of the port was supposed to be made jointly by Republic of Daghestan head Ramazan Abdulatipov, presidential envoy to the North Caucasus Federal District Sergei Melikov, and federal Minister of Transport Maksim Sokolov in mid-June. But no such meeting between the three men ever took place.
Instead, within days of Khidirov’s appointment, Russian media began to report that Transneft, the monopoly operator of Russia’s oil-pipeline network, was considering suspending the shipment via Makhachkala of crude oil from Kazakhstan and Turkmenistan because so much of it was being syphoned off from reservoirs owned by Dagnefteprodukt. (In 2013-14, up to 10,000 tons per month was reportedly being stolen, with water being pumped into the tanks to mask the theft.) Magomedov has business ties to Transneft, which jointly manages the port of Novorossiisk with Summa. Gormakh is a former director of a Transneft subsidiary.
Dagnefteprodukt is owned by former Daghestani parliament speaker Magomed-Sultan Magomedov whose brother Magomedsalam served from 2010 to 2013 as Daghestan’s president and is now a senior member of the Russian presidential administration.
Transneft announced in late July that it had resumed shipping crude via Makhachkala.
In a recent interview, Republic of Daghestan head Abdulatipov made it clear that he did not want either Magomedov or Kerimov to acquire the port. For that reason, Abdulatipov said, talks had already been launched with a third party, whom Daghestani media subsequently identified as Turkish port operator Yilport Holding, for whom oligarch Telman Ismailov, the founder of Moscow’s now defunct Cherkizovsky market, was said to be acting.
Those reports are confusing insofar as the Makhachkala port is still, at least on paper, the property of the federal government, and Abdulatipov thus has no legal right to dispose of it. Indeed, it is questionable whether under Russian law any foreign company has the right to purchase the port.
But, as Chernovik points out, the federal agency in question, Rosgosimushchestvo, has maintained a deafening silence over the fate of the port ever since the standoff in May between supporters of Gadzhiyev and Gormakh over who should be appointed port director.
Meanwhile, First Deputy Minister for the North Caucasus Baysultanov began lobbying in mid-June for the transformation of the Makhachkala port into a major transport and logistical hub as well as the expansion of its capacity with the apparent aim of capitalizing on the prospects for greatly increased trade with Iran. The oil terminal can currently handle 7.9 million tons per year, while the freight terminal can process 3 million tons, primarily grain, timber, and construction materials.
Finally, in late July, Cyprus-based Arolia Holdings, which is rumored to have connections with Kerimov, filed suit against the Makhachkala port in Daghestan’s Court of Arbitration for the repayment of a 678 million-ruble ($10.3 million) debt to the North Caucasus branch of Sberbank that Arolia acquired in 2013. That sum exceeds the port’s annual turnover, which means the port is in effect facing bankruptcy. Arolia employed similar tactics several years ago to win control on Kerimov’s behalf of the bankrupt Daghestan Airlines and the Makhachkala airport for just 300 million rubles, less than half the market price of 800 million.
Whether the federal government will intervene is impossible to predict. What is clear, however, is that none of the interested parties has shown any indication so far of being willing to abide by the rules of the game.
Editor’s note: Copyright (c) 2016. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.